Ins And Outs Of Franchising Your Business Model Part One
Franchising allows business owners with solid business models to expand their concepts using other people’s money, time and labor.
The method of distribution enables a business to quickly penetrate the market and build a brand before competitors can steal market share by copying the concept. But what makes a concept franchiseable? Four elements must be present to enable a business operator to build a successful franchise system:
* Unit economics.
This is the No. 1 requirement, and refers to the profitability of each unit. Each franchised location must, at a minimum, generate enough revenue to pay all expenses, pay the franchise owner or manager a reasonable salary, and provide the franchise owner with a reasonable return on investment.
While there is no foolproof formula, a prospective franchisee generally will desire an investment that generates sufficient revenue in the first year to recoup the startup costs. A franchise system that generates revenue two or three times the startup costs will be in high demand.
* Demand for your products.
The second requirement is that demand exists for the type of service or product you offer. Concepts that appeal to a limited region of the country or are avante garde generally don’t make for ideal franchise systems.
Instead, prospective franchisors should offer products or services with a wide appeal that also would be in demand for the next 20-50 years.
For example, with today’s population mix, systems that provide educational and development services to children, and those that provide services to the aging population, translate well throughout the country.
Current examples include such concepts as Little Gym, Sylvan Learning Center, LearningRx Learning and Reading Center, Home Instead Senior Care and Synergy HomeCare.
* Ease of replicating the system.
The third requirement is that the business must be easily replicated and simple to execute. Complex systems, technical operations and highly skilled labor requirements make it difficult to replicate the business in multiple locations.
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